Monday, August 31, 2015

"There are many things we should remember about the events of late August and early September 2005, and the political fallout shouldn’t be near the top of the list. Still, the disaster in New Orleans did the Bush administration a great deal of damage — and conservatives have never stopped trying to take their revenge. Every time something has gone wrong on President Obama’s watch, critics have been quick to declare the event “Obama’s Katrina.” How many Katrinas has Mr. Obama had so far? By one count, 23.

"Oliver Sacks, the neurologist and acclaimed author who explored some of the brain’s strangest pathways in best-selling case histories like “The Man Who Mistook His Wife for a Hat,” using his patients’ disorders as starting points for eloquent meditations on consciousness and the human condition, died Sunday at his home in New York City. He was 82."

Friday, August 28, 2015

"Will China’s stock crash trigger another global financial crisis? Probably not. Still, the big market swings of the past week have been a reminder that the next president may well have to deal with some of the same problems that faced George W. Bush and Barack Obama. Financial instability abides."

Thursday, August 27, 2015

Python is an Object Oriented software product. One can use it as a script language, or as a programming language. Children can use it, once they grasp the concept of a variable in Algebra. Also can be considered as a prerequisite to study calculus.

The definition of limit , requires a notion of algorithm. One changes one variable, as another one changes. One can get as close as one wants to the limit, but never reach it.

On the other hand, young people have awareness of motion, this is related with the philosophical concept of conatus; but most of all, for my purposes here, it has to do with motor development.

It is possible to observe how we relate motor coordination with notion development. After all, it is the brain, and the whole nervous system, which are in control of our motor skills.

Providing the child with a Chromebook, or a pen-tablet combination, one can start, programming-preparation earlier. One has to draw letters, before we can write. The case of programming may be similar, one has to practice motion routines, like with Turtle Geometry, before recurrent functions are mentioned, with computer language routines, and loops.

We may find out, as Plato stated long ago; that a slave does not learn Geometry, but remembers it. Meno's slave.

Let's make children remember programming with Python, using the Motion to Notion insight.

Wednesday, August 26, 2015

Number theory is one of the oldest mathematical fields. Euclid published one of the oldest known algorithms. Take two rods of different lengths. Choose a unit, such that an integer number of them fit exactly. Which is the maximum number of those units, common to both? That is, this so called greatest common divisor (gcd), is the smallest 'new unit', which covers them exactly.

In some cases (relative primes), the 'new unit', is the same as the old unit, but not always.

Tuesday, August 25, 2015

Let me tell you why I am here with words I have borrowed from a famous old
manifesto. I am here because:

A spectre is haunting Europe — the spectre of democracy. All the powers of old
Europe have entered into a holy alliance to exorcise this spectre: The state sponsored
bankers and the Eurogroup, the Troika and Dr Schäuble, Spain’s heirs of
Franco’s political legacy and the SPD’s Berlin leadership, Baltic governments that
subjected their populations to terrible, unnecessary recession and Greece’s
resurgent oligarchy.

I am here in front of you because a small nation chose to oppose this holy alliance.
To look at them in the eye and say: Our liberty is not for sale. Our dignity is not for
auction. If we give up liberty and dignity, as you demand that we do, Europe will lose
its integrity and forfeit its soul.

I am here in front of you because nothing good happens in Europe if it does not start
from France.

I am here in front of you because the Athens Spring that united Greeks and gave
them back

• their smile

• their courage

• their freedom from fear

• the strength to say NO to irrationality

• NO to un-freedom

• NO to a subjugation that in the end does not benefit even Europe’s strong
and mighty,

…that magnificent Athens Spring, which culminated in a 62% saying a majestic NO to
Un-Reason and to Misanthropy,…

…our Athens Spring, was also a chance for a Paris Spring, a Frangy Spring, a Berlin, a
Madrid, a Dublin, a Helsinki, a Bratislava, a Vienna Spring.

I am here because our Athens Spring was crushed, just like the Prague Spring before
it. Of course it was not crushed using the tanks. It was crushed using the banks. As
Berthold Brecht once said, "Why send out murderers when we can employ bailiffs?"
Why stage a coup d’état when you can send to a freshly elected government the
President of the Eurogroup to tell the new finance minister, three days after taking
office, that he faces a choice: the pre-existing Austerity Program, which resulted in
his country’s Great Depression, or the closure of the nation’s banks? Why send
troops in when you can have monthly Troika visits for the explicit purpose of taking
over every branch of government and writing each and every piece of a nation’s
legislation?

Elections cannot change anything

When in my first Eurogroup meeting, back in February, I suggested to finance
ministers a compromise between the existing Troika Austerity Program and our
newly elected government’s reform agenda, Michel Sapin took the floor to agree
with me – to argue eloquently in favour of common ground between the past and
the future, between the Troika program and our new government’s election
manifesto which the Greek people had just endorsed.

Germany’s finance minister immediately intervened: “Elections cannot change
anything!”, he said. “If every time there is an election the rules change, the Eurozone
cannot function.”

Taking the floor again, I replied that, given the way our Union was designed (very,
very badly!), maybe Dr Schäuble had a point. But I added: “If it is true that elections
cannot change anything, we should be honest to our citizens and tell them that.
Maybe we should amend Europe’s Treaties and insert into them a clause that
suspends the democratic process in countries forced to borrow from the Troika. That
suspends elections till the Troika decides they can be held again. Why should we put
our people through the rituals of costly elections if elections cannot change
anything? But”, I asked my fellow ministers, “is this what Europe has come to
colleagues? Is this what our people have signed up to?”

Come to think of it, this admission would be the best gift ever to the Communist
Party of China which also believes elections are a dangerous complication getting in
the way of efficient government. Of course they are wrong. As Churchill said,
democracy is a terrible system. But it is the best of all alternatives, in terms of its
long-term economic efficiency too.

A frozen silence followed for a few seconds in the Eurogroup. No one, not even the
usually abrasive Mr Djisselbloem, could find something to say until some Eastern
European colleague broke the silence with another incantation from the Troika’s
Austerity Book of Psalms. From the corner of my eye I could see Michel Sapin looking
desolate. I was reminded of something he had said to me in Paris, when we first met
at his office: “France is not what it used to be.”

From a very young age I looked to France for inspiration, possibly reminiscent of the
way in which Greece’s re-emergence in the modern world was inspired by the
French revolution, with quotations of Voltaire and Rousseau echoing in my head. At
that moment, Michel’s silence was difficult to bear. The sight and sound of France’s
impotence is a harbinger of a Europe that has lost its way.

A very European coup

Back in the days of our 1967-1974 dictatorship, when the tanks ruled the streets of
Athens, Greek democrats would come to France, travel to Germany, Austria,
Sweden, Canada, Australia, to drum up support for the beleaguered Greek nation. To galvanise solidarity with the Greek people in their struggle against fascist
dictatorship.

Friends, I am not here today to drum up support for Greece’s crushed democracy.

I am here to lend the Greek people’s support and solidarity to France’s democracy.

For this is what is at stake. French democracy. Spanish democracy. Italian
democracy. Democracy throughout Europe. Greece was and unfortunately remains a
laboratory where the destructive power of Self-Defeating Austerity was tried and
tested. Greece was never the issue for the Troika and its minions. You are!

It is not true that our creditors are interested in getting their money back from the
Greek state. Or that they want to see Greece reformed. If they were, they would
have discussed seriously our proposals for restructuring Greece’s public debt in a
manner ensuring that they get most of it back. But they could not care less. They
instead insisted on our surrender. It was the only thing they cared about. They cared
uniquely about one thing: To confirm Dr Schäuble’s dictum that elections cannot be
allowed to change anything in Europe. That democracy ends where insolvency
begins. That proud nations facing debt issues must be condemned to a debt prison
within which it is impossible to produce the wealth necessary to repay their debts
and get out of jail. And so it is that Europe is turning from our common home to our
shared iron cage.

This is important. You read newspapers and listen to radio and television programs
that bombard you with the soothing narrative that the Eurogroup, the Troika around
which the Eurogroup is built, the austerity programs are all about REFORMS, all
about forcing Greece’s failed economy to increase its wealth so that it can pay its
debts and stop imposing upon the rest of Europe.

Only this is not how Europe works in practice. If you were a fly on the wall watching
our negotiations you would see as well as I saw that Ms Lagarde, Mr Draghi, Mr
Juncker, certainly Dr Schäuble, were interested in one thing: In dictating to us ‘terms
of surrender’. Terms that put an end to the Athens Spring. Terms that wiped out the
smile from those across Europe who looked at us and thought that a New Politics is
possible. Terms imposed by creditors, which, incredibly, guarantee that we, the
debtor, cannot repay our debts, old, and new to them.

Toxic medicine

Many of you will wonder, quite rightly: But why would creditors impose on Greece
conditions that reduce Greece’s capacity to pay back its debt to the same creditors?
Why would creditors make the Greek government do things that prevent real
reforms from being implemented? Reforms that would make Greece better placed
within Europe? Could it not be that the Troika is simply trying to make Greeks take a
bitter but necessary medicine? And that we Greeks do not want to take our
medicine? To do our homework, as Mrs Merkel might say?

These are crucial questions. They are crucial for you, for the people of France. Why?
Because if we Greeks are the authors of our own problems, and if it is true that we
are spoilt, lazy people who refuse to do their homework and take their bitter
medicine, then you have nothing to fear. You should not waste any time listening to
people like me.

But, if this is not so, if the medicine we are asked to take again and again is
poisonous, if we have done our homework but the teacher does not even want to
read it, then what is going on in places like Greece has nothing to do with Greece. It
is about the politics of Europe, France in particular.

So, let me be clear on this: The medicine is not just bitter. It is toxic. A doctor
delivering such medicine to a patient would be arrested and disbarred by the
medical association. But in the Eurogroup, the fact that the medicine is killing the
patient is seen as evidence that more of the same medicine is needed. That the dose
has to be increased!

For five years the Troika’s Austerity Program has created the longest and deepest
recession in history. We lost one third of our collective income. Unemployment rose
from 10% to 30% in a country where only 9% of the unemployed have ever received
unemployment benefits. Poverty engulfed 2 out of our 10 million people. It was
never going to be otherwise.

In 2010 the Greek state went bankrupt. Our state could not pay its debts to the
French and the German banks. So, what did Europe do? It decided to give the
bankrupt Greek state the largest loan in history on condition of austerity that
reduced the income from which the old and the new, huge, loans would be repaied.
A ten year old can tell you that the insolvent cannot escape through more loans on
condition that its income must fall.

Austerity makes incomes shrink while debts grow. More debt, in the form of new
bailout loans, on condition of even more income-sapping austerity, leads with
mathematical precision to a catastrophe.

Everyone knew this. So, why did Europe do it? Because the objective was not to
bailout Greece, or Ireland, or Portugal, or Spain! The objective was to bailout
Deutsche Bank, BNP Paribas, Finanz Bank, Societe General, the German and French
banks with taxpayers’ money and put all the burden on the weakest of Europeans,
causing a humanitarian crisis in Greece and a slow burning recession in France.

And then, when it was revealed that all this austerity in fact pushed Greece’s debt up
from 120% to 180% of national income, instead of reducing it, what did official
Europe do? More of the same in 2012, in 2013, in 2014. Incomes continued to fall,
poverty rose, unemployment reached world record territory, everyone owed money
to everyone else and no one could pay. More loans to the state to be paid by the
weakest of citizens was never an economic policy that was going to work. Like Macbeth who added crime to crime, trying to hide his previous crime by committing
a fresh one, so did the Troika add toxic bailout to toxic bailout, extending the crisis,
deepening it, while all along pretending that it was about to be solved.

It was this misanthropic process that extinguished hope in Greece from 2010 to
2015. Last January we were elected to bring hope back. Rather than sit in the
shadows and curse the darkness we decided to light a candle. To give hope and
rationality another chance. And the people took notice. The little candle we lit
illuminated people’s faces, and not just in Greece.

From the perspective of Old Europe’s Holy Alliance, that was a terrible crime for
which we, and those who voted for us, would have to be punished. With another
huge loan. With more self-defeating austerity that will soon bring our public debt to
205% of national income. With another Eurogroup decision condemning our people
to unnecessary suffering for the heinous crime of beginning to hope and, worse still,
spreading that hope to the rest of Europe.

Common ground?

Going back to my first appearance in the Eurogroup, I must tell you I walked in there
with a determination to find common ground, as Michel Sapin also did. Let me read
to you extracts from my intervention with which I proposed a new partnership with
the institutions and with my colleagues, the other finance ministers:

The new partnership we propose to you should be based on realistic goals and
efficient policies.

We, the new Greek government, must earn a very precious currency without
depleting an important capital good: We must earn your trust without losing the
trust of our people – of the voters amongst which we enjoy, for now, sizeable
approval ratings. For such approval is an important capital good in Europe’s struggle
to reform Greece and to render it stable and normal.

In this time of change, we hear your concerns about our government’s intentions. We
need, clearly, to put them to rest.

I am here today to convey to you a clear message on the new government’s program
and commitments to its Eurogroup partners.

Greece, as a member of the Eurozone, is fully committed to find a solution jointly
discussed between partners, in order to strengthen our monetary union.

We are committed to cooperate in good faith with all our European and international
partners, on an equal footing. We are committed to sound public finances. Greece has made a vast adjustment over
the past five years at immense social cost. Its deficit is now below 3% in nominal terms, down from 15% in 2010. We now have a primary surplus and our structural
surplus, as measured by the International Monetary Fund, is the largest in the EU.

The new government takes this adjustment as its point of departure. We wish now to
move forward, on the basis of a new mutually beneficial partnership with our
European partners.

We are committed to deep structural reforms.

Our reform agenda aims at re-creating confidence among Greek citizens, growth in
the economy, and credibility in Europe. It recognizes the need for deep reforms to
anchor the long-term prosperity of Greece within the Eurozone.

We recognize that the previous adjustment program reflected commitments made by
both Greece and its Eurogroup partners.

We recognize the tremendous efforts made by your countries’ taxpayers to support
Greece’s debt and maintain the integrity of the euro.

However, unrealistic, self-defeating fiscal targets have been imposed on our country
and population and hence must be revised. A primary surplus target of more than 3%
of national income year-in-year-out has no historical precedent in any situation
resembling that of Greece today. It will simply not be possible for our country to grow
if we remain on the growth sapping austerity path imposed on our economy. It is also
quite inconsistent with achieving a sustainably reduced debt-to-income ratio.

The new contract we propose to discuss with you should recognize this evidence. The new contract will build upon reforms that are ‘owned’ by citizens’ and domestic
institutions, using many elements from the previously agreed policy agenda. This also
means that the hope of shared prosperity must be revived across Europe.

We wish to discuss with you this home-grown agenda that reflects both our potential
and specific constraints. We wish our growth to be inclusive, based on investment,
and productivity gains. Growth based on further labour cost compression cannot
work in Greece and has been rejected by our people.

Based on more realistic primary surplus targets and our home-grown, wholly owned,
reform and growth agenda, the new contract we propose will restore a sustainable
debt trajectory.

We invite the International Monetary Fund to work with us to assess Greek debt
sustainability building on the government’s commitments. Greece will stand ready to
make concrete proposals to its partners, in due time, on a menu of innovative
instruments to reduce the debt burden efficiently, including debt swaps.

Then I concluded with these words:

Dear Colleagues,

Europe is whole and indivisible, and the government of Greece considers that Greece
is a permanent and inseparable member of the European Union and our monetary
union.

Some of you, I know, were displeased by the victory of a leftwing, a radical leftwing,
party. To them I have this to say: It would be a lost opportunity to see us as
adversaries.

We are dedicated Europeanists. We care about our people deeply but we are not
populists promising all things to all people. Moreover, we can carry the Greek people
along an agreement that is genuinely beneficial to the average European. In us you
will find trustworthy partners who do not see these meetings as a means of
extracting something out of nothing, of gaining at anyone’s expense.

I look forward to discuss with you now, in a true spirit of cooperation and
partnership, and to write together this new page of our relationship.

I thank you very much for your attention.

Apologies for reading out these extracts. But I wanted to give you a whiff of the spirit
of cooperation with which we approached the Eurogroup. While I was reciting these
lines in the Eurogroup, Brussels’ ‘sources’ leaked that I was being rude, that I was
lecturing my colleagues, that I was rejecting the Troika’s ‘reforms’. I did not take
these leaks personally because they were not meant as a personal attack. It was part
of a brutish propaganda campaign by which to justify the demonization of our
government, an attempt to paint us as communistic radicals so as to prepare
Europe’s public for our overthrow.

For five long months, our side would table clear, sophisticated proposals

• about reforming the tax office and making it totally independent of my
ministry but also of the oligarchy,

• about a debt restructure that would minimize Greece’s new loans and
maximize our repayments to our creditors

• about a new development bank that would utilize public assets and would go
into partnership with the European Investment Bank

• about a new bad bank with which to deal with the non-performing loans of
the Greek banking system, bad private debts that clogged up the circuits of
credit, preventing banks from lending even to profitable, export-oriented
enterprises

• about mechanisms for tackling corruption, price fixing in retail markets,
undeclared labour in labour markets, pension reforms that curtailed early
retirement without pushing more old people into poverty.

Every time we proposed a sensible measure or reform, we were knocked back. My
French colleagues were clearly out of their depth, having depressingly little
influence. Even when we agreed on some measure with Michel Sapin or Pierre
Moscovici, so what? If the President of the Eurogroup so chose, our agreement
would not even be heard in the Eurogroup – not of course that Mr Djisselbloem ever
took these decisions on his own. When, cognisant of this, I took the matter to Dr
Schäuble, Wolfgang refused to negotiate with me on anything of substance: It is the
existing (failed) program or the highway, was his line. “Go to the institutions.” Which
I duly did.

Stonewalling

Except that our negotiations with the institutions, the Troika, were the most
frustrating experience one can ever have. Like some annoying people who want to
talk to you about everything at once, which means that you end up talking about
nothing at all, the institutions insisted on a “comprehensive review” leading to a
“comprehensive agreement”, which meant they wanted to talk about everything.

They would say we need all your data on the fiscal path on which Greek economy
finds itself, we need all the data on state-owned enterprises, all the data on pension
funds, on energy companies, on this, that and the other. To demonstrate our
cooperation we went along, answered the questionnaires, held countless meetings
providing the data. After a great deal of time was wasted finding facts that they
already had, before we the ministers knew them, they’d ask us what we intended to
do on value added tax, VAT. We would do our utmost to explain to them our
sensible, moderate plans for VAT. They would listen, looking unconvinced, reject our
proposal but fail to come up with a proposal of their own. And then, before pinning
down an agreement on VAT, they would shift to another issue, like privatisation.
They would ask what we want to do about privatisation, we would put something
sensible and moderate forward, they would reject it. Then they’d move onto another
topic, like pensions, from there to product markets, from there to labour relations,
from labour relations to all sorts of things. So it was like a cat chasing its own tail.

Perhaps the greatest impediment to holding a sensible negotiation was the Troika’s
fragmentation. The IMF was close to us on the importance of debt restructuring but
insisted that we should remove any remaining protection of workers’ rights and
middle class professionals, like pharmacists or engineers. The Commission were far
more sympathetic to us on these social issues but forbade any talk of a debt
restructure lest they upset Berlin or Frankfurt. The ECB had its own agenda. In short,
each of the institutions different red lines, which meant that we were imprisoned in
a grid of red lines.

Even worse, we had to deal with our creditors ‘vertical disintegration’, as the bosses
of the IMF and the Commission had a different agenda to their minions or as the
German and Austrian finance ministers had an agenda totally at odds to that of their
Chancellors.

Meanwhile, as the days and the weeks were passing due to the determination of our
creditors to delay, delay and delay, while leaking to the press at the same time that
we were the ones holding the negotiations back, our government was being
asphyxiated on purpose by the ECB. Even before we were elected the ECB had
signalled that it would reduce Greek bank access to liquidity. Our opponents in the
press turned this into a gigantic scare campaign, effectively inciting depositors to
take their money out of the banks. There is nothing easier in the world than a
Central Bank starting a bank run – the very bank run that Central Banks were created
to prevent.

Days after we were elected, I dashed to London to talk to City financiers in order to
calm their nerves and convince them that our government was pro-business, while
also being determined to safeguard the interest of our suffering population. It
worked. The next morning the Greek stock exchange rose by 12% and bank shares by
20% plus. The day after that, the ECB announced that it was to limit our banks’
access to its liquidity mechanism. The stock exchange crashed again. Why would the
ECB do this to our new government?

The official answer was because Greece’s ‘program’ would expire at the end of
February “raising questions about the Greek banks’ collateral”. In reality, the ECB
was putting the squeeze on our government to stop dreaming of reigniting hope and
accept the Troika’s failed program as it was – possibly with a few cosmetic changes.

It is interesting to compare what the ECB did to us with what it had done in the
summer of 2012 when another new government was elected and, again, the Greek
‘program’ was in limbo: Then, the ECB increased the banks’ liquidity to huge levels in
one go and increased the Greek state’s credit card (or T-Bill) limit from 15 billion to
18.3 billion. In our case? In our case, the ECB increased the banks’ liquidity little by
little, day by day, creating fear in depositors that maybe tomorrow the limit would
not be raised and the banks would run dry. Naturally the bank run got worse.

As for the government’s credit card limit, instead of pushing it up from 15 billion to
18.3 billion, the ECB pushed it down, using an unprecedented legal trick, from 15 to
9 billion. And all this at a time when I had to find 7 billion to make payments to the
IMF, payment originally meant to be made from fresh loans that were never given to
us.

Their strategy was very, very simple: Delay any agreement with us, blame the delay
on us and on our proposals’ lack of ‘credibility’, until our government, the state, ran
out of liquidity. Then hit us an ultimatum under threat of immediate bank closure.
This was nothing but a coup.

As I said, in 1967 there were the tanks and in 2015 there were the banks. But the
result is the same in the sense of having overthrown the Government or having
forced it to overthrow itself – as Prime Minister Tsipras unfortunately decided to do
on the night of our magnificent referendum, the night I resigned my ministry, and
then again on 12th July.

Bigger fish to fry

Going back to February, I could see the writing on the wall. I could see that the
Troika was not interested in reforms that touched the oligarchy, partly because they
were in a cosy relationship with the oligarchs (whose press supported to the hilt the
Troika in its struggle against us) and partly because they had bigger fish to fry, France
being the largest.

What could I do to make it harder for them to ignore our proposals? I did two things.
I suggested to them what I thought was a decent, sensible compromise regarding the
process of negotiations. I told them: let us settle on three or four important reforms
that we agree upon, like the tax system, like VAT, like a system to counter corruption
in procurement, and let’s implement them immediately while the ECB relaxes the
restrictions on our liquidity. You want a comprehensive agreement? Let’s carry on
negotiating to get to it – but in the meantime let us introduce these reforms in
parliament by agreement.

Their answer? “No, no, no, this has to be a comprehensive review. Nothing will be
implemented if you dare introduce any legislation. It will be considered unilateral
action inimical to the process of reaching an agreement.”

So, in response, I tried something else, something that was recommended to me by a
person very high up in the International Monetary Fund. Using a team of talented
experts, I set out to create a 60 page Plan for Greece’s Recovery, a Reform Agenda
for Greece, a Blueprint for Ending the Greek Crisis. In that effort I enlisted the advice
of non-Greek experts of note. Larry Summers, the former United States Treasury
Secretary, Lord Lamont, my friend and the former British finance minister, Thomas
Mayer, formerly Deutsche Bank’s chief economist, my great friend Jamie Galbraith,
of the University of Texas, and Mariana Mazzucato, of Sussex University. Then, Jeff
Sachs, of Columbia University, who has helped put together many national reform
agendas on behalf of the International Monetary Fund, helped me edit the
document.

I handed over that document to other finance ministers, sent it to governments and
functionaries of the institutions. Did anyone pay any attention to it? Of course not.
Even my Prime Minister was too coy to submit it to other heads of government,
afraid that the Troika would consider our own comprehensive document to be a
challenge to its authority, to its “comprehensive review process”.

Meanwhile the Troika, various people from the Commission, from the German
finance ministry and other sources of power, accelerated their leaks to the media
that we were refusing to reform the country, that we were wasting time, that we
had nothing credible to offer!

I urge you to look at my website where I have uploaded that document and, if you
have time and energy, compare it to the ‘agreement’ that was ultimately imposed upon Prime Minister Tsipras. A quick look will convince you that our plan, the one no
one discussed, the one even the Greek government failed to publicise, would end
the Greek crisis, unlike the terms of surrender dictated on 12th July, and which our
Parliament passed recently, that will fuel the crisis further, with calamitous effects
on the weakest of Greek citizens.

End Game

And so it was the never-ending negotiation continued until our state’s liquidity ran
out completely. At the 11th hour, on 25th June, four days before the Greek banks
were to be closed down by the ECB, the Troika gave us their proposed agreement. It
was an ultimatum. Take it or your banks will never open their doors again.

We read their proposals. They were absolutely poisonous… totally non-viable and
toxic. They wanted us to promise a ridiculous amount of fresh austerity, to increase
VAT on our Aegean islands’ hotels from 6% to 23%, when in Turkey it is 7%, to cut
the pensions of the poorest pensioners by one third. The list of horrors they insisted
upon was endless.

For months they were asphyxiating our government and economy with a
simultaneous bank run and a liquidity squeeze, they were insisting that our stressed
state kept repaying the Intentional Monetary Fund out its own decaying fibre, and
they delayed the negotiations till we reached the edge of the cliff. And at that point
they made the kind of proposal one makes when one does not want an agreement.
The question is: Why would they want to do this?

Did they do it to get us to agree to reforms? Of course not. We were desperate to
introduce reforms. When they spoke of reforms they never meant it. It is not a
reform to cut the pensions of a pensioner on 300 euros per month to 200 euros per
month. Our pension system reform proposals were genuine reforms – we had a plan
on how to lever up public assets in order to create investments that would pay
dividends that would, in turn, support the pension funds. We proposed a restructure
of the pension funds and drastic restrictions on early retirement. But they were not
interested.

Let me now turn to the question of debt. The point of restructuring debt is to reduce
the new loans necessary for salvaging a bankrupt debtor. Creditors offer debt relief
to get more value back and to extend as little new finance to the stressed entity as
possible. Greece’s creditors did the opposite. They refused to restructure debt and
insisted that we should take on more and more of it under conditions that
guaranteed it could not be paid back.

During the negotiations, I never stopped suggesting to our creditors a series of smart
debt swaps that would aim at two objectives: To minimise the new loans. And to
ensure that Greece qualifies for the type of ECB support that the rest of the
Eurozone member-states receive daily, as the best way to stop borrowing from European taxpayers. They rejected my proposals and have now imposed a new loan
that is double the size of what was necessary.

Our proposals were not in fact rejected. This is what really matters:Our proposals
were never discussed! Even though we had it on good authority that they were
technically rigorous and legally sound, the political will of the Eurogroup was to
ignore our proposals, to let the negotiations fail, to close our banks, and force the
Greek government to surrender on everything – including a massive new loan much
greater than what we proposed.

Why?

So, back to the terrible question: Why do Greece’s creditors prefer a much larger new
loan package than necessary? Why did they ignore our reform proposals which they
knew we could and wanted to implement? Why did they waste the great opportunity we
presented them as the only government that had the support of the vast majority of the
Greek people? Did they not ‘get it’ that we were uniquely placed to ask Greeks to take
bitter, though not toxic, reformist medicine? Why did they insist that the medicine
should be poisonous and not therapeutic?

There is no economic answer here. The only answer is one that resides firmly in the
realm of power politics. The Troika’s greatest fear was that our government might
succeed. That its own superior wisdom and authority would then be questioned by you
dear friends, by the people of Europe. The Troika does not mind Greece as a
permanently festering wound. The German finance minister is not even that concerned
about getting German taxpayers’ money back.

Those who run the show in Europe are prepared to pour a lot more of their taxpayers’
money into a bottomless Greek pit, while the people of Greece suffer, if this the only
way they can perpetuate their control over their own people.

• Debt is creditor power and unsustainable debt gives creditors even more power.

• They did not want your money back.

• They wanted to overthrow our government at your expense.

• Even better, they wanted us to lay a bed of nails and then lie on its voluntarily,
thanking them for letting us do it.

• They wanted to humiliate the only government that dared question the logic of
an illogical economic policy.

Our five month long negotiation was a contest between the right of creditors to
govern a debtor nation and the democratic right of that nation’s citizens to be selfgoverned.
There was never a negotiation between the EU and Greece as a member
state of the EU.

This is why I am here. I am here because what happened to us is beginning to
happen to you. Greece is a battleground on which a war against European
democracy, against French democracy is tried and tested.

Back in May, in the sidelines of yet another Eurogroup meeting, I had had the
privilege of a fascinating conversation with Dr Schäuble. We talked extensively both
about Greece and regarding the future of the Eurozone. Later on that day, the
Eurogroup meeting’s agenda included an item on future institutional changes to
bolster the Eurozone. In those conversations, it became abundantly clear what Dr
Schäuble was planning for Europe. It was also clear that a large majority of finance
ministers were in agreement. Michel Sapin was not one of them but, still, I cannot
remember him protesting openly Dr Schäuble’s vision. France is clearly not what it
used to be…

And what is the plan? Francois Mitterrand knew that the Eurozone was badly
constructed. He believed that the first large euro crisis would force his successors to
introduce the political union necessary to save Europe from a 1930s-like
fragmentation. He was wrong.

Large-scale crisis is of course inevitable when control over different nations’ money
is deferred to “technocrats” unchecked by a parliamentary process to keep them in
check or to back them up when necessary. Once the inevitable crisis hits, national
interests resurface with a vengeance. History proved Mitterrand wrong: The crisis
set one proud nation against another and pushed a federal solution further away
into a distant future.

Which left us with Dr Schäuble’s plan: A Eurozonal budget overlord (possibly a
glorified version of the Eurogroup’s President) equipped only with negative, or veto,
powers over national budgets. Over France’s budget to be precise. A Eurogroup that
gets more and more powerful as the European Commission fades into the
background, limited to looking after matters of minor importance.

To those who speak of ‘more Europe’ and in favour of a ‘political union’, I say:
Beware! The Soviet Union was also a political union. The question is: What kind of
political union? A democratic realm of shared prosperity? Or an iron cage for
Europe’s peoples?

A federal democracy, let me remind you, like Germany, the United States or
Australia, is founded on the sovereignty of its citizens as reflected in the positive
power of their federal representatives to legislate what must be done on the
sovereign people’s behalf.

In sharp contrast, the Schäuble Plan envisages only negative powers: A budget
overlord that can only say ‘No’ but has very limited capacity to recycle surpluses
from the surplus to the deficit regions of Europe – which is what a federal system
would do.

The problem with this plan is twofold. First, it would not help to safeguard and to
manage the Eurozone’s macro-economy. Secondly, it would violate basic principles
of Western liberal democracy.

So, why is Greece relevant in all this? Because it is part of the plan to use Greece as a
morality tale, as a demonstration to you folks of what awaits you if you resist this
disciplinarian version of political union. Grexit is meant as a threat that forces the
people of France to accept as lesser evils permanent austerity, permanent crisis and
direct control over your destiny by unaccountable, faceless, economically illiterate
pseudo-technocrats.

Make no mistake in this: Our government was crushed because we dared say no to
the Troika at a time when there were plans afoot for the Troika to come to Paris.
Don’t say you have not be warned. “We are all Greeks now” not because there is
something superior about the Greeks but because the Athens Spring lit up a small
candle emitting hope to all Europeans. A candle that the Troika had to extinguish at
all cost, lest its authority be challenged by the spectre of democracy.

Loss of sovereignty over key departments of state

One of the shocking realisations after assuming the Ministry of Finance was the
manner in which five years of Troika rule had turned the Greek state into Swiss
cheese. Whole chunks of our government had been gobbled up by the Troika,
answering directly to them, unaccountable to the ministers or, indeed, to
Parliament.

And it was not just the Bank of Greece, which had become incorporated in the
European Central Bank – the same central bank that, instead of helping our
government (as central banks were initially set up to do), was asphyxiating us. No, I
am referring to other crucial institutions like the Hellenic Financial Stability Facility –
HFSF - (that owns on behalf of the state all the banks), the outfit that handles all
privatisations, the Statistical Office and, of course, my own ministry’s public
revenues secretariat.

When I decided to reduce the enormous salaries of the HFSF managers, appointed
largely by the Troika, I received a letter from Mr Thomas Wieser, the Euro Working
Group president, a key Troika functionary, who told me I could not do that without
his outfit’s approval. In a country where the Troika demands constant wage and
pension cuts, the minister could not reduce the exorbitant salaries of the Troika’s
favourite boys and girls – salaries paid for by our bankrupt nation.

On another occasion I tried to interrogate my own ministry’s public revenues
secretariat on which it delayed by four months the opening up of the web
application with which companies submit their tax returns – the same four month
period when our state was being asphyxiated and in dire need of tax revenues. I was
told that I, the Minister, had no authority over the Public Revenues Secretariat which
was, effectively, directly wired into the Troika. Soon, during the negotiations, the
Troika forced me to legislate greater autonomy for the general secretary who was
assisting in our state’s asphyxiation!

And when, after my resignation, I told a group of financiers of my plan to re-establish
national sovereignty over that particular secretariat, I suddenly faced a campaign,
from the Troika-friendly Greek media, to have me indicted for… high treason.

I am telling you all this so that you are warned. When the Troika comes to Paris, in
person or in spirit, know this: a hideous dearth of national sovereignty will be
imposed upon French ministers too – if it has not been imposed already.

Democratic deficit

Let me now take you back to the end of June. Prime Minister Tsipras had announced
the referendum on the basis that we had neither a mandate to accept a non-viable
agreement, nor to clash with Europe. So, we put the Troika’s ultimatum to the Greek
people.

In the Eurogroup meeting that followed on 27th June, I was lambasted by several
ministers of finance for having dared put to common folk complex financial
questions. What? Is this not the point of democracy? To put complex questions to
common folk, on the basis of one person one vote? Was I hearing this properly? The
Eurogroup – the organ of the world’s largest economy where all the decisions
shaping our social economies are made – was rejecting democracy in my face?

In that meeting, President Dijsselbloem announced that he was about to convene a
second meeting later that evening without me; without Greece being represented. I
protested that he cannot, of his own accord, exclude the finance minister of a
Eurozone member-state and I asked for legal advice on the matter.

After a short break, the advice came from the Eurogroup’s Secretariat: “The
Eurogroup does not exist in European law. It is an informal group and, therefore,
there are no written rules to constrain its President.” No written rules, no minutes
taken (so that citizens can see what was said on their behalf), no respect for
democracy. This is the institution that decides for you and me, for your children and
mine. Is this the Europe that Adenauer, De Gaulle, Brandt, Giscard, Schmidt, Kohl,
Mitterrand etc. had worked towards? Or is it the epitaph of the Europe that we had
always thought of as our point of reference, our compass?

A week or so later, the people of Greece, despite the closed banks and the scare
mongering of the corrupt Greek media, delivered a resounding NO in the
referendum. On the following day the Euro Summit responded by imposing on our
Prime Minister an agreement that can only be described as our government’s terms
of surrender. And the Euro Summit’s weapon of choice? The illegal threat of
amputating Greece from the Eurozone.

Whatever one thinks of our government, and despite the divisions between us
occasioned by that surrender, this episode will go down in European history as the
moment when official Europe declared war on European democracy. Greece
capitulated but it is Europe that was defeated.

Our discontent

As you may have heard, on that night I disagreed with PM Tsipras and resigned. We
had been disagreeing on a number of issues before.

Conceding to the Troika in late April ridiculously high primary surpluses, without my
consent, was always going to embolden our creditors. Once you acquiesce on high
primary surpluses, that is you accept new austerity, you signal that you are not really
serious about debt restructuring. And once you give up on austerity and the debt,
the Troika knows you are beaten. All they had to do was to wait for our capitulation.

The reason I did not resign then, in late April or at the beginning of May, was that I
was sure that the Troika would not give my Prime Minister any half-decent deal even
after he granted them almost everything they had asked for. For their aim was our
humiliation, rather than a hard, austerian deal. And so I waited for Alexis to stiffen
his tone. The referendum gave him that chance.

When the Eurogroup signalled to the ECB to shut down our banks in retaliation to
our referendum – the same banks the ECB had repeatedly declared solvent – I
recommended two or three acts of retaliation of our own. When I was outvoted
within our war cabinet, I knew it was game over.

But then the brave, fearless people of Greece, despite the propaganda waged by the
oligarchs’ TV and radio stations, ignoring the closed down banks, voted a resounding
‘No’ to surrender. That night Danae and I felt that we had another chance. Or that, at
the very least, we should resign if we thought our weapons were all spent, taking to
the streets with our courageous people. ‘Not in our name’, should have been our
defiant answer to the Troika’s demand that we sign up to its catastrophic, ‘new’
plan.

These disagreements between Alexis Tsipras and I are now water under the bridge. It
saddens me that our paths have diverged. In particular it saddens me to hear my
comrade struggle for words in support for a program that he knows cannot be made
to work.

Can we move forward united in difference? The Left has not been good at this in the
past. It better improve now. We need to leave the door open for all those who have
the urge and the capacity to join us in the Struggle for Recovering Europe’s Integrity
and Soul. For democratising the Eurozone.

A false, but entertaining, history of the euro

Why did we Europeans create the euro? An analytically wrong but entertaining
answer goes like this:

The French feared the Germans
The Irish wanted to escape Britain
Greeks were terrified of Turkey
The Spanish wanted to become more like the French
Southern Italians craved migratory rights to… Germany
Northern Italians wanted to become German
The Dutch and the Austrians had all but become German
The Belgians sought to heal their sharp divisions by joining into both Holland
and France under the auspices of a reconfigured Deutsch mark
The Baltics shivered at the thought of a resurgent Russia
Slovakians had nowhere else to go after separation from their Czech brethren
Slovenia was escaping the Balkans
Finland had to do something Sweden wouldn’t
And, finally, the Germans feared the… Germans!

Like all big lies, this account contains important small truths. The French did fear the
Germans. And the Germans had reason to fear that fear, as well as their own nationstate’s
capacity to self-destruct.

At this point I want to beg to differ from those who put the blame for Europe’s crisis
on Germany and “the” Germans. I have always opposed this tendency for two
reasons.

First, there is no such thing as “the” Germans. Or “the” Greeks. Or “the” French for
that matter. Anyone who knows German, Greek, French society will also know that
there is a great deal more divergence in character, virtue and opinion within the
Greeks, within the French, and within the Germans than there are diffrerences
between Germans, French and Greeks.

The second reason I oppose the censure of Germany is that Paris bears greater
responsibility than Berlin for our present mess. Let me take you back to September
18th, 1992. On that day, two days before the French people were to vote in the
referendum on the Maastricht Treaty, Le Figaro had this to say:

The opponents of Maastricht fear that the common currency and the
new Central Bank will fortify the superiority of the Deutsche Mark and
the Bundesbank. But the exact opposite will happen. If it comes to
Maastricht, Germany will have to share its financial might with others.
“Germany will pay”, they said in the 1920s. Today Germany does pay.
Maastricht is the Treaty of Versailles without a war.

No German could forgive such callousness. It was no excuse that the French
establishment was struggling to persuade a skeptical French electorate to vote ‘Yes’
in the referendum.

The 1919 Versailles Treaty condemned Germans to unspeakable misery, humiliated
the proud German nation, and prepared it to be taken over by Nazi thugs. The Nazis
would have remained a historical footnote if it were not for the impossible
reparations of the Versailles Treaty.

This was not just a wayward editorial of some French newspaper. President De
Gaulle had also envisaged monetary union with Germany as “war by other means”
precisely in the spirit of Le Figaro’s leader. And then in 1983, when Francois
Mitterrand decided to ditch the socialist government’s anti-austerity policies to
placate the markets and the Bundesbank, Jacques Delors argued that he was
embracing austerity because austerity could only be defeated at the European level.
And how would that happen? Delors’ plan was to capture an institution cherished by
the German people, the Bundesbank, subsume it in a French-dominated central
bank, and extend into Germany and the rest of Europe policies close to Paris’ heart.

Yes, it is true that I have had enough of hearing German politicians, like Wolfgang
Schäuble, go on and on about the sanctity of unenforceable rules. But we must be
honest: France’s elites are responsible for putting Germany’s elites on the defensive.
French Grand Ecoles graduates talk the good talk about Europe’s Common Good but
in reality they were keen to sacrifice the interests of the majority of the French
people on the altar of their narrow self-interest. They constantly demanded that
their own people and the rest of Europe should make sacrifices so that France’s
ruling class would prosper, with Deutsch marks or euros in their pockets.

The euro changed all that. Locked into its steel embrace, France’s sophisticated
administrators are now realizing that monetary union will not deliver them Germany
on a plate. Indeed, they are realizing that not only are they not winning over Germany
that they were losing France. This offers us, committed European humanists, no
solace. Our people in France, in Germany, in Greece, in Finland are suffering from
our so-called elites’ inane handling of the euro’s inevitable crisis.

Ants and grasshoppers

Turning back to that old manifesto with which I began my talk, it remains true that
the humanity’s history is the history of class struggle. The only political force that
forgot this is the… Left. The Right have never budged from pursuing a class war in
practice while using any crisis to turn one proud nation against another.

The notion that the ants all live in the North and the grasshoppers all in the South,
plus in Ireland, is absurd. There are ants and there are grasshoppers in each of our
nations. During the ‘good’ times of the Eurozone, the grasshoppers of the North and
the grasshoppers of the South went on a feeding frenzy. And when their sins led to the crisis, it was the ants of the North and the ants of the South that were made to
foot the bill.

The Troika and the Eurogroup represents official Europe’s espousal of the
grasshoppers’ agenda, everywhere in Europe, turning the ants of the North against
the ants of the South in a Europe that is losing its soul because of stereotyping,
denial and because of the ironclad determination of grubby so-called elites not to let
go of the levers of ill-gotten power.

In 1929 a crash in Wall Street began the process that dismantled the common
currency of that era – the Gold Standard. In 2008 another crash in Wall Street began
the process of fragmentation of the Eurozone. On both occasions, the French turned
against the Germans, the Germans against the French, before the French turned
against the French, the Greeks against the Greeks and the Germans against the
Germans. On both occasions, in the 1930s and now, the only beneficiaries were the
bigots, the nationalists, the xenophobes, the misanthropes. The serpent’s egg did
not take long to hatch in the resulting circumstances.

Anti-nationalist, anti-nazi

This is why it is so important that we avoid beginning sentences with “The Germans
this” or “The French that” or “The Greeks the other”. This is why it is imperative that
we understand there is no such thing as “the” Germans, “the” Greeks or “the”
French. That we are all Europeans facing a very European crisis.

In my first visit to Berlin, at the press conference I gave with Dr Wolfgang Schäuble, I
had this to say, in his presence:

As finance minister in a government facing emergency circumstances caused by a
savage debt-deflationary crisis, I feel that the German nation is the one that can
understand us better than anyone else. No one understands better than the people of
this land how a severely depressed economy combined with ritual national
humiliation and unending hopelessness can hatch the serpent’s egg within one’s
society. When I return home tonight, I shall find myself in a Parliament in which the
third largest party is a Nazi one.

Germany can be proud of the fact that Nazism has been eradicated here. But it is one
of history’s cruel ironies that Nazism is rearing its ugly head in Greece, a country,
which put up such a fine struggle against it. We need the people of Germany to help
us in the struggle against misanthropy. We need our German friends to remain
steadfast in Europe’s post-war project; that is, never again to allow a 1930s like
depression to divide proud European nations. We shall do our duty in this regard. And
I am convinced that so will our European partners.

So, no more stereotyping the Greeks, the Germans, the French, anyone. Let us
extend our hand to all who want to reclaim Europe as a democratic realm of shared
prosperity.

CONCLUSION

I have tired you enough. Let me finish with my, and Danae’s, profound thanks to
Arnaud Montebourg and Aurelie Filippatti for their hospitality, their friendship and
for allowing us to meet with all of you today – for this opportunity to start something
important, here in Frangy.

France is the laboratory of Europe. By bringing into France the spirit of the Athens
Spring, hope can be given another chance.

Dear friends, diversity and difference was never Europe’s problem.

Our continent began uniting under many different languages and cultures but
ended up divided by a common currency.

Why? Because we let our rulers try to do something that cannot be done: to depoliticise
money, to turn Brussels, the Eurogroup, the ECB, into politics-free zones.

When politics and money are de-politicised what happens is that democracy dies.
And when democracy dies, prosperity is confined to the very few who cannot even
enjoy it behind the gates and the fences they need to build to protect themselves
from their victims.

To counter this dystopia the people of Europe must believe again that democracy is
not a luxury afforded to creditors and declined to debtors.

Perhaps it is time for a European network with the explicit purpose of democratising
the euro. Not another political party but a Pan-European inclusive coalition from
Helsinki to Lisbon and from Dublin to Athens committed to moving from the Europe
of “We the governments” to “We the people”. Committed to ending the blame
game. Committed to the dictum that there is no such thing as “the” Germans, “the”
French or “the” Greeks.

The model of national parties which form flimsy alliances in the European Parliament
is obsolete. European democrats must come together first, form a network, forge a
common agenda, and then find ways of connecting it with local communities and at
the national level.

Realism demands of us that our new European Network seeks ways of adapting
existing European institutions to our people’s needs. To be modest and to use
existing institutions in creative ways. To forget, at least for now, about Treaty
changes and federal steps that can only follow after we and the spectre of
democracy have ended the crisis.

Take the four realms where Europe’s crisis is unfolding. Debt, banks, inadequate
investment and poverty. All four are currently left in the hands of governments that are powerless to act upon them. Let’s Europeanise them! Let existing institutions
manage part of the debt of member-states, place banks that fail under a common
European jurisdiction, give the European Investment Bank the task of administering
a pan-European, investment-led recovery program. And, lastly, let us use the
accounting profits accumulating within the European System of Central Banks to
fund a poverty-fighting program everywhere in Europe – including Germany.

I call this overarching program Decentralised Europeanisation because it
Europeanises our common problems but proposes no federal treasury, no loss of
sovereignty, no fiscal transfers, no German or French guarantees for Irish or Greek
debt, no need for Treaty changes, no new institutions. It gives more freedom to
elected governments. It limits their impotence. It restores the democratic
functioning of our Parliaments.

A few years ago Michel Rocard backed this proposal, and even wrote the preface to
it. It can be the starting point of our Pan-European network’s deliberations bringing
together the French Left, Greek radical left-wingers, a more confident German
society, even conservatives who agree that the current arrangements are poisoning
democracy and derailing our economies.

We do not have to agree on everything. Let us make a start with an agreement that
the Eurozone needs to be democratised.

When Gandhi was asked what he thought of Western civilisation, he famously
replied that: "...it would be a very good idea".

If asked what we think of our European Union today, we should say: "What a
splendid idea! If only we could pull it off!

"
We can pull it off. All we need to do is help the spectre of democracy haunt those
who detest it.

Let me finish by adding to the French ideals of liberty, fraternity and equality some
other notions that our Athens Spring brought to the fore and which the new Europe
must embrace again: hope, rationality, diversity, tolerance and, of course,
democracy.

The Russian scientist Lev Vygotsky, invented the concept of Zone of Proximal Development (ZPD), to understand how we learn. If the subject is not in our ZPD, we don't understand. I here propose, that if a big enough group of relevant people, have their ZPD outside of one concept, that group will not understand the concept. This will be then a collective ZPD.

Lev Termen was misunderstood.

I want to use the hands, to connect young people to computer programming.

I read enough Paul Krugman, and Joseph Stiglitz, to know that Economics has a political component. Nowadays there are world economic problems. The production of goods and services stalled. Finance has to do with moving capital to where it is needed.

China had a big correction, which has not ended. The Communist Party of China is learning how to play Capitalism. It is a slow and painful process. Cuba is just gearing up for this game. I expect them to outperform their friends in Miami. I just watched Memories of Underdevelopment last night.

We know from Physics, that Diffusion is the phenomenon by which anything moves from where it is plenty, to where it is scarce.

Capital doesn't follow free diffusion, because there are anti-diffusive forces. That is, what I think, is the role of states with their regulatory powers.

Governments should open the gates for capital to go to wages, and away from unproductive accounts. Less interest for accounts, increased wages for workers.

The US Fed Should Not Increase Short Term Interest Rates in September!

Monday, August 24, 2015

What caused Friday’s stock plunge? What does it mean for the future? Nobody knows, and not much.

Attempts to explain daily stock movements are usually foolish: a real-time survey of the 1987 stock crash found no evidence for any of the rationalizations economists and journalists offered after the fact, finding instead that people were selling because, you guessed it, prices were falling. And the stock market is a terrible guide to the economic future: Paul Samuelson once quipped that the market had predicted nine of the last five recessions, and nothing has changed on that front.

Still, investors are clearly jittery — with good reason. U.S. economic news has been good though not great lately, but the world as a whole still seems remarkably accident-prone. For seven years and counting we’ve lived in a global economy that lurches from crisis to crisis: Every time one part of the world finally seems to get back on its feet, another part stumbles. And America can’t insulate itself completely from these global woes.

But why does the world economy keep stumbling?

On the surface, we seem to have had a remarkable run of bad luck. First there was the housing bust, and the banking crisis it triggered. Then, just as the worst seemed to be over, Europe went into debt crisis and double-dip recession. Europe eventually achieved a precarious stability and began growing again — but now we’re seeing big problems in China and other emerging markets, which were previously pillars of strength.

But these aren’t just a series of unrelated accidents. Instead, what we’re seeing is what happens when too much money is chasing too few investment opportunities.

More than a decade ago, Ben Bernanke famously argued that a ballooning U.S. trade deficit was the result, not of domestic factors, but of a “global saving glut”: a huge excess of savings over investment in China and other developing nations, driven in part by policy reactions to the Asian crisis of the 1990s, which was flowing to the United States in search of returns. He worried a bit about the fact that the inflow of capital was being channeled, not into business investment, but into housing; obviously he should have worried much more. (Some of us did.) But his suggestion that the U.S. housing boom was in part caused by weakness in foreign economies still looks valid.

Of course, the boom became a bubble, which inflicted immense damage when it burst. Furthermore, that wasn’t the end of the story. There was also a flood of capital from Germany and other northern European countries to Spain, Portugal, and Greece. This too turned out to be a bubble, and the bursting of that bubble in 2009-2010 precipitated the euro crisis.

And still the story wasn’t over. With America and Europe no longer attractive destinations, the global glut went looking for new bubbles to inflate. It found them in emerging markets, sending currencies likeBrazil’s real to unsustainable heights. It couldn’t last, and now we’re in the middle of an emerging-market crisis that reminds some observers of Asia in the 1990s — remember, where it all started.

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Ron

Was it not Milton Friedman who said "Stock market and housing inflation is always and everywhere a monetary phenomenon"?

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Dave

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What’s causing this global glut? Probably a mix of factors. Population growth is slowing worldwide, and for all the hype about the latest technology, it doesn’t seem to be creating either surging productivityor a lot of demand for business investment. The ideology of austerity, which has led to unprecedented weakness in government spending, has added to the problem. And low inflation around the world, which means low interest rates even when economies are booming, has reduced the room to cut rates when economies slump.

Whatever the precise mix of causes, what’s important now is that policy makers take seriously the possibility, I’d say probability, that excess savings and persistent global weakness is the new normal.

My sense is that there’s a deep-seated unwillingness, even among sophisticated officials, to accept this reality. Partly this is about special interests: Wall Street doesn’t want to hear that an unstable world requires strong financial regulation, and politicians who want to kill the welfare state don’t want to hear that government spending and debt aren’t problems in the current environment.

But there’s also, I believe, a sort of emotional prejudice against the very notion of global glut. Politicians and technocrats alike want to view themselves as serious people making hard choices — choices like cutting popular programs and raising interest rates. They don’t like being told that we’re in a world where seemingly tough-minded policies will actually make things worse. But we are, and they will.